Schumpeter reports that:
Steven Kaplan of Chicago’s Booth School of Business ... has now gathered his research together in a new paper (“Executive Compensation and Corporate Governance in the US: Perceptions, Facts and Challenges”). ... It is now impossible to talk sensibly about this subject without first grappling with Mr Kaplan.
The paper is available at SSRN: Kaplan, Steven N., Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges (August 22, 2012). Chicago Booth Research Paper No. 12-42; Fama-Miller Working Paper. http://ssrn.com/abstract=2134208. The abstract follows:
In this paper, I consider the evidence for three common perceptions of U.S. CEO pay and corporate governance: (1) CEOs are overpaid and their pay keeps increasing; (2) CEOs are not paid for performance; and (3) boards do not penalize CEOs for poor performance. While average CEO pay increased substantially through the 1990s, it has declined since then. CEO pay levels relative to other highly paid groups today are comparable to their average levels in the early 1990s. In fact, the relative pay of large company CEOs is similar to its average level since the 1930s. The ratio of large company CEO pay to firm market value also has remained roughly constant since 1960. This suggests that similar forces, likely technology and scale, have played a meaningful role in driving CEO pay and the pay of others with top incomes. With regard to performance, CEOs are paid for performance and penalized for poor performance. Finally, boards do monitor CEOs. The rate of CEO turnover has increased in the 2000s compared to the 1980s and 1990s, and is significantly tied to poor stock performance. While corporate governance failures and pay outliers as well as the very high average pay levels relative to the typical household undoubtedly have contributed to the common perceptions, a meaningful part of CEO pay appears to be market determined and boards do appear to monitor their CEOs. Consistent with that, top executive pay policies at over 98% of S&P 500 and Russell 3000 companies received majority shareholder support in the Dodd-Frank mandated Say-On-Pay votes in 2011.
I've downloaded the paper and it is a tour de force. Compensation critics who do not engage his work will be exposed as pure cranks. But how will they rebut it?
